Samsung Forces Apple Into Price Hike On Component Parts; How Will Apple Respond?

Apple and Samsung are friendly foes. The two companies are fiercely competitive with one another in the smartphone and tablet marketplace, a tension that's only gotten worse since the Korean-based electronics maker was forced to pay $1.05 billion to Apple for infringing its patents, and according to a new report from MarketWatch, the already-strained relationship just got worse.

According to MarketWatch, citing "a person familiar with negotiations between the two tech giants," Samsung has forced Apple into a 20 percent price hike for its mobile processors, and Apple, without any other options, was forced to accept the hike.

"Samsung Electronics recently asked Apple for a significant price raise in (the mobile processor known as) application processor," the source was quoted as saying. "Apple first disapproved it, but finding no replacement supplier, it accepted the (increase)."

According to the report, Apple currently buys all its application processors from Samsung, which shipped more than 130 million tiny microprocessors for the iPhone and iPad last year, and is expected to sell upward of 200 million more units this year.

Apple is currently locked into a long-term contract with Samsung to supply its application processors until 2014, but given recent events, it's likely Apple will begin to more aggressively pursue alternative options, including other companies, and even internally. The last thing Apple wants is to be at the will and whim of Samsung, its prime hardware competitor in the marketplace.

In October, J.T. Tsu of Citigroup Global Markets was quoted in a report by the Taiwan Economic News, which claimed Apple has already begun working with Taiwan Semiconductor Manufacturing Co. (TMSC) to build new quad-core 20-nanometer chips to be used in iOS devices by late 2013. This timetable would fit any kind of transition away from manufacturing the chips with Samsung, which would end early the next year.

"Apple began verifying TSMC's 20nm process in August this year and may begin risk production in November with the process," the report said. "Volume production is expected to start in the fourth quarter of 2013, raising the possibility that TSMC will hike capital expenditure to US$11-12 billion in 2013 and 2014."

While Apple is surely looking to find another chip maker besides Samsung, it's highly likely that Apple will employ TSMC -- and possibly a handful of other chip makers -- until the company can fully transition the work internally.

In a recent shake-up at the company that saw the key departure of iOS chief Scott Forstall, Apple is allegedly pursuing chip research internally in a new company division called "Technologies," which will be headed by Bob Mansfield, Apple's briefly-retired former SVP of hardware engineering. Besides semiconductor technologies, Mansfield's team will also be focused on advancing Apple's wireless technologies, so it makes sense for Apple, which is all about the tight integration of hardware and software, to begin work on many of these processes in-house.

Until Apple actually gets its alternative semiconductor solutions going, however, Cupertino will remain at the mercy of Samsung.